How Decile Calculates Profit

Decile’s mission is to help e-commerce brands and retailers grow profitably. To do this, we must first calculate profit to understand it not only at a sales level but ultimately as Customer Lifetime Value (LTV).

Decile uses a combination of gross margin percentage and optionally a SKU-level cost of goods file to calculate profit.

Gross Margin Percentage

Decile can use a gross margin percentage to calculate profit by applying the margin percentage to the original unit price of all line items. This calculation provides an estimate of the cost of goods sold.

 line_item_profit = (unit_price * gross_margin_percentage) * quantity

Line item profit is then summed up at the order level with discounts and refunds subtracted. This is similar to how Shopify calculates net sales, but using line item profit instead of gross sales.

order_profit = sum(line_item_profit) - discounts - refunds 

SKU-level Cost of Goods

For a more granular profitability lens, we recommend clients upload a file including SKU-level cost of goods sold. SKU-level COGS allow us to account for the variations in profit by product and changes in manufacturing or sourcing costs over time.

When we have SKU-level COGS, profit is calculated at the line item level as:

line_item_profit = (unit_price - unit_cost) * quantity

NOTE: We will apply the general gross margin percentage described above to any SKU for which there isn’t an associated cost.

From there, line_item_profit is rolled up to the order level as described above in the Gross Margin Percentage section.